Trump's energy secretary wants to save coal. Will Californians end up paying the price?

The conservative billionaire Philip Anschutz wants to build America's biggest wind project in Wyoming and send the electricity to California. But politics could get in the way. (file, 2017)
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The coal-fired Jim Bridger Power Plant in southwestern Wyoming shoots steam and air pollution into the sky on Dec. 7, 2016.(Photo: Jay Calderon/The Desert Sun)Buy Photo

A new proposal from the Trump administration could force Californians to foot some of the bill for propping up struggling coal plants in Utah and Wyoming, critics say — but only if California Gov. Jerry Brown succeeds in his quest to unify the western power grid.

Under a proposal released last week by President Trump's energy secretary Rick Perry, homes and businesses across the country could be required to pay more money on their electric bills to support financially challenged coal and nuclear plants. Perry says he wants to make sure those facilities stay open, since they can be relied upon to provide energy during extreme weather events and disasters. But clean energy advocates and many grid experts say coal and nuclear power aren't needed to keep the lights on during emergencies, and Perry's proposal would create expensive, unnecessary subsidies.

If federal regulators adopt Perry's plan, new rules supporting coal and nuclear plants would apply to the California Independent System Operator, which runs the power grid for 80 percent of the state. The grid operator would be required to compensate those facilities for the reliability services Perry says they provide, with customers of Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric footing the bill.

Golden State ratepayers probably wouldn't see much of an impact, since California has no coal plants and the state's last nuclear plant, Diablo Canyon, is slated for closure. With no coal and nuclear plants, there would be nothing for Californians to pay for.

But that could all change if the California grid operator expands to include utilities in states like Utah and Wyoming — a controversial idea championed by Gov. Brown.

Supporters of Brown's proposal say a unified western grid would make it easier to share renewable energy across state lines. But opponents have long feared the plan would backfire, helping coal plants stay open by expanding their potential customer base — especially if the Trump administration decided to meddle in regional electricity markets.

Perry's proposal, those critics say, is exactly what they were worried about. While the energy secretary's order is short on details, it could conceivably lead to a scenario where California homes and businesses pay higher energy bills to make sure coal plants in Utah, Wyoming and other western states are making enough money to stay open.

"It's not far-fetched at all," said Matthew Freedman, a staff attorney at the Utility Reform Network, a San Francisco-based ratepayer advocacy group.

Ralph Cavanagh, co-director of the Natural Resources Defense Council's energy program, called Perry's proposal an "atrocious idea." But he doesn't think it changes the environmental or economic calculus of a unified western power grid. If federal regulators wanted to force Californians to subsidize coal plants, Cavanagh said, they could find a way to do so now — even if the state's grid operator doesn't expand across the West.

"If you're worried about that, you should be worried today," Cavanagh said.

Perry: 'America's greatness' depends on coal

President Trump promised during the campaign to save coal jobs, which are quickly disappearing as utilities turn to cheaper, cleaner sources of energy. Perry has helped lead those efforts. In April, he requested an Energy Department staff report seemingly designed to show that coal and nuclear plants — which can generate electricity 24/7, unlike solar and wind farms — are needed to keep the country's collective lights on.

Energy Department staff didn't end up providing much support for Perry's thesis, finding that the grid has become more reliable in recent years, even as coal plants have shut down and intermittent solar and wind power has grown. Independent experts have reached similar conclusions, finding that electricity in the U.S. is more reliable than ever.

But that didn't stop Perry from issuing his proposed rule, which would need to be adopted by the Federal Energy Regulatory Commission, an independent agency outside the Energy Department's control. Under Perry's proposal, FERC would require regional grid operators like California's to "develop and implement market rules that accurately price generation resources necessary to maintain the reliability and resiliency of our Nation's bulk power system." Those rules would support "fuel-secure generation units," which Perry defines, in part, as power plants that store 90 days of fuel on site.

That language has been widely interpreted to refer to coal and nuclear plants.

"America's greatness depends on a reliable, resilient electric grid powered by an 'all of the above' mix of generation resources," Perry wrote in a letter to FERC commissioners.

FERC has a long history of supporting competitive markets that don't favor one fuel over another. But the commission's new chair, Trump appointee Neil Chatterjee, has said he doesn't think coal plants are fairly compensated for the value they provide.

While the text of Perry's proposal is difficult to decipher, its goal seems to be "guaranteed profitability" for certain power plants, said Ari Peskoe, a senior fellow in electricity law at Harvard Law School who has litigated cases before the commission.

"It flies in the face of everything FERC has done for the last 20 years, which is really promoting the development of competitive markets for energy," Peskoe said.

Perry's proposal is unusual for other reasons. The energy secretary can propose FERC rules under an obscure provision in the 1977 law that created the Energy Department, but it's been 30 years since that authority was used. Perry's proposal is also so "flimsy and vague" that it may not even qualify as a rule FERC has to consider, Peskoe said.

But FERC seems to have decided that the proposal is sufficient — and that it had better act fast. The commission opened a public comment period Monday, giving stakeholders and members of the public until October 23 to weigh in on Perry's proposed rule.

That would be a three-week comment period — lightning fast by FERC standards, especially for a rule that Travis Kavulla, former president of the National Association of Regulatory Utility Commissioners, has said would be "the largest change to electricity regulation in decades." It's also an even quicker turnaround than the 45-day comment period Perry requested. The energy secretary asked FERC to take final action on his proposal within 60 days, a timeline Peskoe called "practically and legally impossible."

What Perry's proposal means for California

Even if FERC eventually adopts some version of Perry's idea, it's far from clear what that would mean for the California Independent System Operator and other grid operators around the country. FERC might give those entities broad leeway to develop their own compensation mechanisms for coal and nuclear, or it could mandate specific types of payments. Any new rules to support coal and nuclear would likely face legal pushback from grid operators, who could take the federal regulatory agency to court.

Under the governor's proposal — which was defeated in the state Legislature this year, but is likely to be debated again in 2018 — the California grid operator would be allowed to annex out-of-state utilities, making it easier for electricity to be sold across state lines. Early discussions have focused on annexing PacifiCorp, a Warren Buffett-owned utility with customers in Idaho, Oregon, Utah, Washington, Wyoming and Northern California.

Major environmental and trade groups including the Natural Resources Defense Council, the Environmental Defense Fund and the Solar Energy Industries Association support Brown's plan, which they see as a boon for renewable energy. With a single regional energy market, the argument goes, California utilities could import cheap wind power from states like Wyoming, whose powerful gusts tend to blow at different times than California's in-state wind. The Golden State could also sell solar power to other states when it's not needed here, improving the economics of building solar farms.

A study commissioned by the state grid operator found that Californians would save $55 million per year under a PacifiCorp annexation, and $1.5 billion per year if other western utilities follow PacifiCorp's lead. In the meantime, a more limited effort toward greater regional energy-sharing has already saved ratepayers money. The program has slashed costs for utility customers in California and seven other states by $213 million over the last three years, according to the state grid operator. Portland General Electric officially joined the program this week, and other western utilities are lining up to follow suit.

But critics of a regional power grid — including the Sierra Club, the country's largest environmental group — are worried Brown's plan would backfire, helping coal plants survive the economic headwinds they face. The California grid operator is currently overseen by California lawmakers, but expansion would require ceding some of that oversight to other states. If the grid operator were to annex PacifiCorp, lawmakers in coal-friendly Utah and Wyoming would have some control over California's power grid — a prospect that worries the Sierra Club, some ratepayer watchdogs and other critics.

Trump's election made those critics even more worried, since they knew the Federal Energy Regulatory Commission would have authority over a regional energy market like the one Brown is trying to create. Travis Ritchie, a staff attorney at the Sierra Club, called Perry's proposed rule "exactly the type of thing we were concerned about."

PacifiCorp owns six coal-fired power plants in Utah and Wyoming. If FERC issues an order like the one Perry asked for — and if the California grid operator annexes PacifiCorp — it's possible Edison, PG&E and SDG&E customers in California would be forced to pay some of the extra costs to keep those coal plants open, Ritchie said.

"You're talking about adding many coal units to a regional market where California may have little to no ability to prevent those subsidies. And if that happened, then you're in a position of California customers subsidizing coal, which we've worked long and hard to get off of," Ritchie said.

But Cavanagh, from the Natural Resources Defense Council, isn't worried — at least not about grid expansion. He noted that FERC already has authority over the California grid operator, and that a handful of out-of-state coal plants already sell into California. (Coal accounted for about 4 percent of the state's electricity last year.) If FERC wanted to force Californians to subsidize those coal plants, it could do so now, Cavanagh said.

And if FERC commissioners do try to save coal plants, Cavanagh thinks they won't succeed. Even coal-friendly utilities won't support Perry's proposal, he predicted.

"Across the entire West, I expect this proposal to be met with principled and strenuous opposition," Cavanagh said. "It is so obviously an attempt to supersede the judgment of the states... and to substitute federal judgment for state decision-making."

Anne Gonzales, a spokesperson for the California grid operator, said in an email that the organization "is aware of the (Department of Energy) notice of proposed rulemaking and will work with all parties to ensure system reliability as the grid's resource mix evolves toward clean and low cost generation resources."

Sammy Roth writes about energy and the environment for The Desert Sun. He can be reached at sammy.roth@desertsun.com, (760) 778-4622 and @Sammy_Roth.